The golden rule of public finance and the composition of government expenditures: a growth and welfare analysis

Max Groneck*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

8 Citations (Scopus)

Abstract

This paper employs an endogenous growth model to study the growth and welfare effects of the golden rule of public finance. Two versions are compared, whereby government deficits are restricted for the use of public investments. It is shown that the growth effect of the golden rule depends on what kind of expenditure is adjusted to meet debt obligations. A transition from a balanced budget to a golden rule is performed to study welfare. The results indicate that a budget rule with detrimental growth effects can still have positive welfare implications, and vice versa, if the composition of government expenditures and transitional dynamics are taken into account.

Original languageEnglish
Pages (from-to)273-294
Number of pages22
JournalJournal of Economic Policy Reform
Volume14
Issue number4
DOIs
Publication statusPublished - 2011
Externally publishedYes

Keywords

  • budget rules
  • golden rule of public finance
  • fiscal policy
  • endogenous growth
  • welfare
  • ENDOGENOUS GROWTH
  • TRANSITIONAL DYNAMICS
  • BUDGETARY REGIMES
  • FISCAL-POLICY
  • government debt

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